In February, when we reported on the new penthouse units being built on top of River Place at 1101 Arlington Boulevard (map), several commenters brought up an interesting quirk related to the existing property: it sits on leased land, and that lease is set to expire in 2052.

River Place encompasses four buildings, totaling 1,720 units made up of co-ops and apartments. The River Place Owner’s Association leases the 13 acres underneath the project from an estate, which issued a 99-year land lease way back in 1953. When 2052 comes around, the land and all of the “improvements” — the buildings — go back to the land owner. What this means is that the individual owners could very well lose their homes without any compensation.

Surprisingly, in our research, we found that the owners and the association had a fairly relaxed attitude toward this eventuality.

“In a day-to-day-way, it doesn’t affect me or the other tenants,” said Robert J. Lesnick, an owner at River Place. “In 2052, I’ll be 100. When my mortgage is paid off, I’ll still have 20 years left to rent out my unit and make a profit.”

While units at River Place usually sell for below what comparable units in the area fetch, many are being rented out at fairly steep rental rates, making for valuable investment properties for the owners. A high percentage of units are occupied, suggesting that so far, the pros balance out against the risks for buyers. The owner’s association is aware of the lease situation, but are not actively dealing with the impending end-date just yet.

However, as time ticks on, the effects of the approaching deadline will be felt. Some think that the home prices will start to reflect the risky nature of the investment.

“It seems logical to me that as the end of the lease approaches, the market value of the individual units will approach zero,” Jeffrey Spangler, a former owner at River Place, told UrbanTurf. Spangler is also a lawyer and has written about the River Place situation at length.

What may also affect prices could be the year 2022, when potential buyers will be unable to secure a 30-year mortgage. At that point, lenders may have to start issuing shorter and shorter mortgages and perhaps find other ways to protect their investment. “Some people think there will be a cliff (a drastic drop in prices) at the 30-year mark,” said Lesnick, who is also a lawyer. “I think it will be more gradual.”

Price depreciation aside, there doesn’t appear to be a clear solution for the co-op owners. While a lease extension is possible, it seems unlikely that the land owners will opt for that considering the value of a piece of land that offers views of DC, Rosslyn and the Iwo Jima Memorial. “It’s a prime piece of real estate. When the lease runs up, they will turn it into a skyscraper, a premier designer high-rise,” speculated Spangler.

Another option is a buyout, but Spangler warns that the cost of that would be astronomical. “Only The Donald or someone wealthier could even think of buying River Place,” he believes. Lesnick even speculated about the possibility of the building securing historical status. But none of these avenues have been researched comprehensively, the owner’s association doesn’t seem to actively be working towards a solution, and no one really knows what will happen with the clock runs down.

For now, owners at River Place can enjoy a somewhat unusual situation: paying below-market rates for spectacular views with the strong possibility that the property will generate a steady stream of cash for them as a rental in the event they decide to move out. So, it appears that life will be good at River Place…at least for another 40 years.

This article originally published at http://dc.urbanturf.com/articles/blog/when_you_own_a_coop_on_leased_land/5417

8 Comments

Jan said at 12:39 pm on Thursday April 19, 2012:

This situation happens all the time in the UK, especially London. Leasehold (as they are called) houses/flats are routinely sold with less than 30 years left on their leases. Yes, they go for lower than market rates and that gap increases as the remaining time on the lease shortens.

Robert said at 12:41 pm on Thursday April 19, 2012:

Fascinating, but not totally unprecedented. There are a lot of co-op buildings on leased land in NYC. The difference here seems to be that the owners of this land will likely take advantage of its value in 2052. In NY, the land owners just extend the lease, I think.

Mike said at 4:03 pm on Thursday April 19, 2012:

At least one building in DC is on leased land: the 4101 Cathedral Avenue Cooperative and there may be others. Part of the difficulty for these associations is the degree of willingness the land owners have to negotiate a sale. In the case of 4101 Cathedral, it is my understanding that an estate and its heirs have been unable to agree on what action should be taken, resulting in a stalemate. Many events can transpire over 40 years so no one really knows for sure what options will be available for River Place and others in a similar situation.

Dana Hollish Hill said at 5:05 pm on Thursday April 19, 2012:

I recall seeing co-op docs for River Place years ago that had less than 20 years left on the land lease and I cautioned my buyer clients about this issue at that time. However, a few years ago, the lease was re-negotiated which is why they are up to 40 years of lease again.

karzai said at 11:19 am on Friday April 20, 2012:

There was not a renegotiation of the lease. As a former owner and Board member in the East Building, the lease was always until 2052. The ticking down of the land lease was one reasone we sold in 2004, rather than wait for the values to decline as the land lease wind down.

Ed said at 2:05 pm on Sunday April 22, 2012:

This happens quite a bit in NYC where a lot of land under building is owned by estates or churches going all the way back to the Dutch founding of the city.

There was one building that was coming pretty close to the building reverting back to the owner and the units were going for fire sale prices and the maintenance was very high.

donmitte said at 8:00 pm on Monday February 25, 2013:

WRONG! RIVERPLACE is on BEST REAL ESTATE IN THE NATION & rumor has it it’s going to be bought as is and UPGRADED entirely!! We love this place it is the best deal in town. Also County working to make the land historically protected which will UP the VALUE by boatloads. Right now, seveal new upgrades are in place and many units are stunning & views are the best!. GET REAL you must be the COMPETITION in the area LOLLL

Daniel Mills said at 10:33 am on Sunday April 14, 2013:

My lender, BB&T, on my RPW unit just declined to consider a refinance due to the ground lease issue and I am in the market for a 15 year mortgage. Given the shortage of prime ground in Rosslyn, I think it is possible someone will buy the ground but they will probably try to negotiate the buyouts first, or they will make the offer on the ground contingent of the buyouts. There are so few owner-occupiers, like me, that a buyout would not be difficult. I love this place, by the way.